Canada’s over-dependence on foreign investment is a problem

TORONTO—Where will the future shape of our economy be decided: in the boardrooms of Canadian-owned and controlled businesses, or in the head offsides of corporations in other countries? The Trudeau government seems to believe that our best hope lies in the head offices of foreign corporations. It is paying billions of dollars to international firms so that they will create the jobs and investments we need while ensuring it is easy for these same companies to buy up our most promising young businesses. It’s telling these multinationals that we will educate the talent and invest in fundamental research, but we don’t know how to create the jobs for this talent and we don’t know how to commercialize our basic research. So we will pay you to create the jobs and own the wealth-generating intellectual property from commercializing the new knowledge we create in our universities and start-ups. Clearly, foreign corporations have a place in our economy. They bring new ideas and new knowledge, new ways of doing things and new jobs. But our overdependence on foreign investment and ownership and neglect of Canadian potential makes us hostage to foreign boardrooms and ultimately undermines our sovereignty. Ownership does matter. The corporate head office plays a critical role and if so many of our corporate head offices are in other countries, and not here in Canada, then that's where our economic future will be decided. We will be a branch-plant economy, creating the seed corn and future wealth for foreign corporations. Corporate head offices coordinate all the activities of a business. Power is at the centre; it's where all the critical decisions are made. Corporate head offices train and promote senior management, set global strategies, make investment and research and development decisions, determine the major procurement decisions, allocate financial resources for investments, and are the critical market for a wide range of business services. Many of the producer services that support these industries worldwide are determined by head office, with a tendency to favour service providers in the home country. This creates clusters of specialized business services in a small number if global cities: from management consultants, law firms, software providers, to advertising and marketing agencies, and engineering and other technical services. These services constitute a dynamic part of a city’s economy. If a major Canadian company is acquired by a foreign multinational this will almost certainly mean a loss of business service opportunities in Canadian cities. Multinationals, then, play a crucial role in shaping our economy, leaving little autonomy for Canadian management. And the growing use of digital technologies enables the head office to have much greater reach over the activities of subsidiaries in Canada. A foreign takeover will almost certainly mean much reduced autonomy. Heads of foreign-owned firms here may find they are reporting to lower-level executives at the parent company head office. They will have little autonomy for locally-generated business initiatives with R&D and other key functions determined from abroad. Profits will be repatriated to the foreign parent, which also owns the intellectual property. Foreign investments and takeovers may also block the emergence of Canadian competitors. The Trudeau government, early on, was criticized—and rightly so—for courting the Googles, Amazons, Apples, Facebooks, Microsofts, and other American tech giants while paying little attention to the needs or potential of young Canadian tech companies. Today, as it pursues a role for Canada in electric vehicles, batteries and critical minerals, it is spending billions of dollars on foreign corporations in pursuit of investment. But there is little evidence it is paying much attention to a role for domestic suppliers in key components or technology so that they can scale up to become global suppliers. Scale-ups matter. It is through scale-ups that new ideas gain momentum and deliver the results of successful commercialization of new ideas. It is vital to succeed as a scale-up nation. Serious scaling up means achieving annual sales approaching $500-million, with ongoing growth potential. A Massachusetts Institute of Technology study found successful scaling up brings many advantages that small companies lack. A scaled-up company can support stronger brand development, is able to produce new products and services, pursue new markets more quickly, can afford R&D, benefit from economies of scale that can lower costs and boost competitiveness, and has the capacity to acquire young growth companies as part of its strategy. As the study says, “scale allows for investment in factors that drive competitive advantage such as the capacity to innovate: the talent, technology, and R&D needed to continually bring new products or services to the marketplace requires significant resources that only scale can provide.” There are broader benefits to communities and clusters as companies scale up. Growing companies create jobs and contribute to the overall growth of a region. They should improve productivity and generate more tax revenue. They can develop local pools of talent that will benefit new companies, boost opportunities for local suppliers, serve as role models for entrepreneurship, become sources of finance for local start-ups, and—through the wealth generated—use some of that money to improve the quality of life in their communities. Canadian-owned and controlled companies are more likely to be more attuned to the well-being of this country and its communities through philanthropic activities. In 1971, Canada tried to build up more home-grown companies through the Canada Development Corporation, which would invest in Canadian corporations. That exercise failed. We have another chance now, with the planned Canada Growth Fund. It could become a source of long-term or patient equity for the most promising Canadian growth companies, holding sufficient equity to block foreign takeovers. But we also need to make it harder for the foreign takeover of many mid-range domestic companies. We don’t need an inward-looking protectionism. But we do need to strengthen business decision-making in our own country. We need more Canada in our corporate boardrooms. David Crane can be reached at crane@interlog.com. The Hill Times

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Canada’s over-dependence on foreign investment is a problem

Ownership does matter. If so many of our corporate head offices are in other countries, then that's where Canada’s economic future will be decided. We'll be a branch-plant economy, creating future wealth for foreign corporations.

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